The Clean Power Plan: A View from FERC, Part IV - Economic v. Environmental Dispatch, Please

By J. Wylie Donald

It’s been a long winter in my neck of the woods and not because Punxsutawney Phil saw his shadow. Pipes froze. Twice. Furnace was out overnight. Broke three shovels. So I had a particular interest this past Wednesday, March 11, in FERC’s Eastern Regional Technical Conference on EPA’s Clean Power Plan (CPP) and FERC’s and EPA’s takes on reliability issues.

After the introductions EPA Assistant Administrator Janet McCabe led off with the same position she had delivered at the Opening Conference, which is something of a mantra for EPA: EPA has enforced the Clean Air Act for over forty years and has not impacted reliability. Commissioner Tony Clark, however and politely, was not buying it. To be sure, EPA’s Clean Air Act initiatives had not brought the Grid crashing down. But he enumerated half-a-dozen facilities where EPA regulations had impacted reliability, including the Presque Isle Power Plant, the Potomac River Generating Station, and the E.D. Edwards Power Station.

Commissioner Clark laid it out plain and simple: any time there is a “must run” requirement imposed on a plant, that is a reliability issue. Where operators have made decisions to close because plants are no longer profitable as a result of the cost of environmental compliance, but reliability concerns have compelled the plants to keep operating, that is a case of environmental regulations impacting reliability.

Commissioner Moeller asked Ms. McCabe for EPA guidance on how reliability could be ensured under the CPP, the so-called “reliability safety valve” (RSV). She responded without specifics, saying merely that EPA is prepared to work with everyone. To that Commissioner Moeller was very plain: a reliability safety valve needs to be in the final rule. Period.

What were the details driving Commissioners Moeller and Clark? They are set out in great detail in the written comments of the affected generators. A few were stated at the technical conference:

New England - RGGI, the Regional Greenhouse Gas Initiative, has put New England in excellent position to meet the CPP goals. But even with the early mover advantage, New England has substantial concerns. As Commissioner Paul Roberti of the Rhode Island Public Utilities Commission reported, the independent system operator, ISO-NE, forecasts 8300 MW are to be retired by 2020, to be replaced by 6300 MW, with an additional 1000 MW in efficiency improvements. Even assuming all of that can be built in time and the forecast efficiency is real, New England has gas transmission challenges (as demonstrated by skyrocketing prices and unavailability during the 2013 polar vortex) and electrical transmission challenges (the substantial wind resources identified in northern Maine are 100 miles from the nearest transmission). As Steve Rourke, a VP of ISO-NE, commented: even as New England's fuel mix starts to change, those current coal plants are needed on the coldest and hottest days.

Duke Energy - Paul Newton, the State President for North Carolina for Duke, stated flatly that EPA's interim compliance deadlines leave no room to ensure compliance can be achieved without compromising reliability. In February, North Carolina set records for demand at 7 a.m. Why did he select 7 a.m. to report? Because that is a time when non-dispatchable generation assets cannot provide power.

The Southern Company - Jeff Burleson, System Planning Vice President for Southern, explained how Southern plans for the future. It looks at each plant (as it must because regional capacity can only be based on individual plant capacity). EPA predicts that Southern will need to retire 9 GW as a result of the CPP, in addition to 3 GW as a result of MATS (Mercury and Air Toxics Standards). In response, Southern anticipates needing 5 GW of new gas-fired plants. There is one small impediment: current gas pipelines in the region are fully subscribed. Mr. Burleson also commented that demand response is estimated to be able to shave peak demand by about 10% and that that is already included in Southern's planning.

The environmental perspective is that reliability issues are manageable. As John Wilson, the Director of Research for the Southern Alliance for Clean Energy, commented, "the sky is not falling" and there is plenty of solar and wind energy available. Energy efficiency will help too. In sum, the Alliance's studies show that "ensuring reliability can be business as usual." Johnny Casana of EDP was a little more equivocal, if the suite of low carbon strategies can ensure reliability, then the RSV may not be needed. Jonathan Peress with the Environmental Defense Fund advised that their studies showed that there is ample pipeline capacity in New England if it is used efficiently.

Some may remain unconvinced. The solar and wind resources don't meet Mr. Newton's 7 a.m. need. One might legitimately be skeptical that "business as usual" can possibly apply to something that (to paraphrase Commisioner Moeller) is the most comprehensive and profound rule ever to come out of the Clean Air Act. EPA's own estimate of over 50 GWs in plant retirements belies that. As for efficient use of gas pipelines, all are for that. But theoretical efficiency worked out in an office is not much salve as the temperatures drop and the pipes burst because the gas has not gotten to where it efficiently should.

Mary Walker, representing the Georgia Environmental Protection Division, best summed it all up. What is needed is “economic dispatch v. environmental dispatch.” When a state's environmental regulator is talking the language of FERC, it is worth listening to. As Ms. Walker noted, the environmental regulator in Georgia is being asked to implement energy policy, which it hasn't done before.

A bit of jocularity between Administrator McCabe and Chairman LaFleur puts the issue, we think, in perspective. Ms. McCabe owned up to her lack of knowledge regarding the sources of unreliability – squirrels, she had been informed by her staff, affect reliability. The Chairman referred to an apocryphal "throw-down squirrel" that linemen carry on their trucks. But linemen don't need a throw-down squirrel, squirrel outages are very real. So what do we have? One regulator, “learning something new every day;” the other regulator dispensing the wisdom of the ages, so to speak. As we move forward with what both regulator and regulatee have referred to as the most significant regulation of the Grid ever, we suspect that many will want the people that really know, rather than the people who are picking it up as they go, in charge of keeping the lights on.

   J. Wylie Donald, a partner at McCarter & English, LLP, counsels and litigates for clients on insurance coverage, environmental and products liability matters. Mr. Donald co-chairs the firm's Climate Change and Renewable Energy Practice. He draws on his substantial environmental experience, his prior non-legal technical work, and his deep involvement in risk management to assist clients in understanding and controlling the coming regulatory and non-regulatory impacts of climate change. He has tried cases and argued appeals in the state courts in New Jersey and Maryland, conducted private arbitrations and mediations, and argued motions in federal courts across the nation.

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